Thank you for joining us to review developments during Euro Manganese's third fiscal quarter. Please note, the slides for today's call can be downloaded from our website. Before we begin, I must remind you that this presentation involves forward-looking statements. Please refer to our cautionary statements here, and the risk factors in our annual information form. Our news release, filed on August fourteenth, highlight our third fiscal quarter financial position. This should be read in conjunction with our management's discussion and analysis and financial statements, both of which are available on our website, SEDAR, and the ASX. Joining me today on the call are Martina Blahova, Chief Financial Officer, and Louise Burgess, Senior Director, Investor Relations and Corporate Communications. I'll pass on to Martina in a moment to go through financial highlights for the quarter and the company's financial position.
Then I'll run through the key developments during the quarter and how we're progressing against key catalysts for 2023. We'll wrap up with a quick question and answer session. Over to you, Martina.
Thank you, Matt. Just a reminder that we report to a year-end of thirtieth of September, so our Q3 references the period of April through June. We also report in Canadian dollars. I will briefly comment on our cash position and the intended use of these funds in the coming quarters. We remain funded to deliver certain near-term project milestones and for corporate G&A for the next six months. We started the quarter with CAD 13.8 million in cash. CAD 1.2 million was spent to advance the commissioning of the demonstration plant, which is now close to completion, and to make a milestone payment to the plant equipment supplier.
CAD 1.6 million was spent on operating expenditures, which covered the advancement of the Chvaletice permitting, including preparation of documentation for land planning and construction permits, the scoping study and other due diligence costs for Bécancour site in Québec and other corporate costs. We closed the quarter with CAD 10.9 million in the bank. Our cash position will allow us to deliver on our near-term project milestones, which include commissioning of the demonstration plant and its initial operation on batch basis, advancing the permitting for construction of the Chvaletice project, advancing certain land acquisitions for the commercial plant area, initial FEED, front-end engineering design, and corporate G&A costs for the next six months.
Additional funding will be required for the EPCM engineering, procurement, construction management services for the project, future payments for land acquisitions, and future construction of infrastructure and facilities for the project. Funding will also be required to advance the company's North American strategy, including land payments and completion of the Bécancour feasibility study. Financing is one of our top priorities, and we continue to work diligently on it with our financial advisors. I will now turn it back to Matt.
Thanks, Martina. Here's an overview of achievements during the quarter and to date, how we advanced on both technical and commercial fronts, including our North America strategy, and I'll speak to these in more detail in the coming slides. Specifically, we remain focused on four key work streams to deliver our quality project. These include advancing engineering, permitting, offtakes, and as Martina just mentioned, financing. We made excellent progress on our engineering work stream this quarter. In June, we awarded the engineering, procurement, construction, management contract or EPCM to Wood. The contract covers all phases of work through to commissioning and handover of the commercial Chvaletice plant. Awarding the contract followed a rigorous selection process. I'm very pleased to be partnering with such a high caliber Tier One company.
In addition to Wood's technical and engineering capabilities, it was important to us to work with a team who had experience in the European Union and a proven track record of delivering large-scale chemical plants. The contract is cost reimbursable and structured in two phases. Phase one includes a gap analysis, which is an in-depth review of the quality plant feasibility study deliverables, including evaluating test work and the flow sheet developed by our team. Following this initial piece of work, front-end engineering design or FEED, for short, will commence, which includes value engineering, identification of long lead items, vendor engagement, and a project implementation strategy, which will inform a baseline schedule for the EPCM phase.
Deliverables of phase one also include the preparation of the construction permit documentation and an updated capital cost estimate for the plant to a ±10% accuracy. As a reminder, our feasibility study for the Chvaletice project outlined an initial CapEx of approximately $750 million, which included over $100 million of contingencies. The feasibility study was completed in mid-2022, when prices for materials were higher than we're seeing today. My point here is, our initial CapEx figure is robust, and we may potentially see some benefits from costs returning to more normal levels. On completion of phase one, expected to be in mid-2024, we expect to make a final investment decision prior to entering phase two.
Phase two is the full engineering, procurement, and construction management stage, where Wood will provide overall project management services, including detailed design, procurement, construction, and commissioning of the main Chvaletice plant. Over to the permitting work stream, and work there is progressing well. On a positive note, 13 of the 14 relevant authorities approved their sections of the study in the environmental and social impact assessment, indicating an overall positive perception of the project. However, we've received comments from one authority related to noise abatement during the quarter, and we have now addressed and resubmitted this section to that relevant authority. For background, our project's anticipated noise level fall well within legislative limits for an industrial project. However, the cumulative effect of noise with other industry in the region marginally exceeded the permitted noise levels at the measurement points located at the closest residential areas.
We expect to resubmit the full EIA in the coming weeks and anticipate a positive decision on this ESIA before the end of 2023. In parallel to the work our team has completed on the revised ESIA, they have also substantially completed the documentation required for the land planning permit. This permit can be submitted on approval of the ESIA. The approval timeline is typically 3-4 months for the land planning permit. Thereafter, the next key permit stage is the construction permit, which is a deliverable of the FEED phase, the documentation. The approval timeline for that is also 3-4 months. Over to the demonstration plant, where we produced 99.9% pure high-purity electrolytic manganese metal, or HPEMM, during the quarter. External lab tests confirmed the HPEMM met demonstration plant specifications, and this de-risks our process spreadsheet.
Production of on-spec high-purity manganese sulfate monohydrate, or HPMSM, has been delayed, and this is due to a manufacturing fault with the crystallizer. An incorrect welding material used by the manufacturer caused corrosion inside the vessel. Our team identified this issue and has addressed the issue, and production of HPMSM has recommenced. Samples need to be tested and assayed by external labs. I want to remind everyone that HPMSM is an almost pharmaceutical-grade product in terms of purity, and therefore specifications of impurity is tight. The demonstration plant is a crucial step in our development. Lessons learned can mitigate risk on the commercial plant, and it also provides experience with our production processes for our operators, as well as enabling production of large-scale samples for potential customers. Note, these samples are not expected to be required for completion of offtake contracts.
That's a good segue to our offtake work stream. Our offtake funnel remains full, with tonnages under discussion increasing over the quarter, and now exceed our plant capacity by more than 30%. In addition, new offtakers have entered the funnel. We now have 22 parties at the top, with more than 50,000 tons of HPMSM per annum, collectively under discussion in that section. A number of parties have advanced to the middle of the funnel, with a total of 11 parties now interested in more than 30,000 tons of HPMSM per annum. Obviously, we remain focused on advancing the six parties at the sharp end of the funnel, the term sheet stage. Verkor is the seventh party here, with whom we already have a term sheet and are moving forward with full documentation.
These seven parties at the sharp end of the funnel now account for more than 120,000 tons of HPMSM per annum, which amounts to 80% of our production capacity. That is the number we are targeting under offtake to underpin our debt financing. I would mention that these initial tonnages, these are initial tonnages from off-takers. Off-takers have indicated a potential need for higher tonnages as the market grows, and as manganese-rich chemistries evolve. We are seeing increased news flow of commercialization of manganese-rich chemistries, including nickel, manganese, cobalt, which are increasing the amount of manganese and decreasing the amount of nickel and cobalt. We're seeing LMFP, and with manganese being added to the LFP chemistries, with big announcement that Samsung are now launching an LMFP chemistry. And sodium ion, a new battery chemistry, also can contain up to 30% manganese.
Additionally, several larger potential customers are still yet to disclose their allocation of tonnage to the company. However, have expressed an expectation to do so in the near future. Euro Manganese remains very well positioned to meet the increasing need for high-purity manganese in lithium-ion batteries. We have the only manganese resource in Europe, and stand to benefit from increasing demands for a local, responsibly produced source of supply. Switching gears to Bécancour, where we made good progress at this growth opportunity in Quebec. Bécancour is fast becoming a battery materials hub, and we are well positioned to take advantage of being at the heart of a made in North America EV supply chain. Our 15-acre site, on which we have an option agreement to purchase, is strategically located adjacent to a cluster of planned cathode active material manufacturing plants.
These include investments by GM, POSCO, BASF, and just recently announced, Ford EcoPro. After the quarter end, we released highlights of a scoping study that evaluated the development of a high-purity metal dissolution plant in Bécancour, capable of producing just over 48,000 tons per annum of HPMSM, based on sufficient supply of HPEMM feedstock. So just a reminder, a metal dissolution plant uses HPEMM as the feedstock. The scoping study delivers strong preliminary economics with a post-tax NPV, net present value of CAD 190 million, using an 8% discount rate. A post-tax IRR, internal rate of return of 26% and a payback period of approximately 4 years. The economic analysis was run on a constant dollar basis with no inflation, no government grants were included, and was unlevered.
Initial capital was estimated at CAD 110 million, including contingencies of CAD 15 million. A key aspect of the plant is a short build time. The scoping study estimated an approximate 2-year engineering and construction duration from the end of the Bécancour feasibility study. Minimal infrastructure is required, with off-site infrastructure limited to just power line connection and potential development of a rail spur from the Bécancour site railway line. On-site infrastructure includes road, plant and administrative buildings, power distribution, storage buildings for metal feedstock, solution and sulfate products. Parallel to this, we continue to engage with both the Quebec provincial and Canadian federal governments on the incentive support programs available for the plant. Residents in the region indicate the Bécancour plant may be eligible to receive support for up to 40% of CapEx.
Additionally, we're investigating whether the recent announced Clean Technology Manufacturing Tax Credit, which would refund 30% of the cost of machinery and equipment used to process critical raw materials essential to the clean technology supply chains, would be available for the plant. We have appointed WSP Canada, out of Montreal, to complete a feasibility study for the Bécancour plant, which will further refine costs, economics, and customer offtake opportunities. The feasibility study is expected to be completed in mid-2024, subject to financing. We aim to advance permitting in parallel with the feasibility study. In addition to the initial economics, what makes Bécancour an attractive opportunity is the feedstock optionality that the MOU with the Manganese Metal Company offers. MMC, as they are known, is the leading producer of selenium-free 99.9% HPEMM, and they're based in South Africa.
The MOU allows the Bécancour plant to be fed with HPM from MMC and/or from our Chvaletice project. It allows for flexibility on the supply of HPEMM, depending on market demand, MMC product availability, and Chvaletice metal sales. The MOU is strategically significant, as this method of feedstock enables the potential acceleration of Bécancour plant to supply the North American market as early as mid-2026. This potentially enables us to be the first to market and also to bring cash flows forward for the company by at least a year. As a reminder, North American demand for high-purity manganese is expected to be over 200,000 tons by 2031. However, there are no current processing facilities in North America.
MMC has provided HPEMM samples for test work as part of the feasibility study, and we intend to work together to conclude a definitive agreement. I'm also very pleased with the cooperation agreement we signed last month with the Grand Conseil de la Nation Waban-Aki, a tribal council of the Abenaki communities, on whose ancestral territory the Bécancour plant will be situated. This agreement defines how we intend to communicate openly and regularly, and to work together for the mutually acceptable development of the Bécancour plant, especially during the evaluation and planning phases. Perhaps a few words on the Bécancour process, process flow sheet before wrapping up. The plant design allows for production of both high purity manganese sulfate solution or HPMSS, which will be for local consumption, and high purity manganese sulfate monohydrate powder, which provides customer offtake flexibility.
Producing HPMSS provides both cost and environmental benefits, as delivering a solution locally eliminates the need to crystallize, dry, and package an HPMSM powder product. The plant design leverages extensive process development and engineering work already completed for the Chvaletice project. Moving on to our 2023 key targets. I've given an update on most of these deliverables today. One to note is the commencement of formal debt process by the commercial project finance banks. This is expected to commence in Q4 this year. The European Bank for Reconstruction and Development, and the European Investment Bank, have already commenced their due diligence processes. We remain focused on our flagship project in Europe, producing on-spec HPMSM from the demonstration plant, advancing the remaining land access agreements, and you'll see that they have remained at three of five, which has been the case for the last two quarters or so.
But I would like to stress that significant pro-progress has been made on these commercial agreements during these last few quarters. Obviously, securing more offtake term sheets and driving customers through that offtake funnel and to contracts is important. And finally, securing finance. Thank you, everyone, for tuning in today. I'll now open it up to questions.
Thank you, Matt. We'll pause for just a moment while people wish to enter questions. Please use the chat function or the Q&A, I apologize, at the bottom of your screen to enter your questions. So we'll just take a moment now.
So one question that we had via email before the call was on progress of the land access agreements, and as I mentioned earlier, we have made significant progress in those negotiations, and we expect those to be completed in the near term.
Thank you, Matt. It is looking like we don't have any other questions at this time, so unless you'd like to enter a question now, we may well wrap up. Alternatively, please do send us questions by email if you have any, but sorry. Apologies, one has just popped in here. Matt, perhaps you can take this one. Can you talk about what you've learned about the high purity manganese industry in China and investments in capacity expansion there?
Yes. We have obviously been—we monitor what's happening in China. I think all of the forecasts for global consumption demand for HPMSM are indicating a deficit in supply globally, including in China. There have been announcements by a number of Chinese firms, both incumbent producers and new producers, announcing planned investments in capacity. We haven't seen any groundbreaking activity as yet. There is a small amount of surplus. As demand grows, we're not yet in that deficit situation, so I think we'll probably wait and see, and I think to see that deficit before you'll see new investments in China.
I would also say that the market is definitely splitting between in China and non-China from a demand perspective, and the demand for local source material, both in Europe and the U.S., is obviously where our focus is, and we're hearing from customers there needs to be a demand for locally sourced material. So whilst I do not underestimate the Chinese ability to grow production capacity quickly, they won't be able to supply all the requirements of a North American and European market from a legislative or incentive perspective. Second question: If all the remaining six term sheets are signed, what will be the impact on the financial requirement for the European project?
So if all of those are signed, then it means we will have met the requirements of the project finance banks, because they require 80% of our production to be under contract. Because in this market, where you cannot hedge like gold or nickel or copper production, they need to see offtake contracts secured for 80% of the product. So it'd be a very significant impact on a positive impact on the financing for the European project.
Another one here, Matt. What level of premium do you envisage for an E.U. and U.S. price compared to current Chinese battery-grade manganese sulfate?
It's a great question. Thank you. If you look at the only index which is available for manganese sulfate, it's a Chinese ex works index. So if we start with that as our baseline, when you look at that index, it's actually a mixture of different qualities, including agricultural-grade material, which is still considered, in China, high purity. But then, if you look at the battery grade within that index, we see that, at about $1,600 a ton, ex works China. You then add transport costs to bring it into a European or U.S. context, and you're adding about $250 per ton.
Now, just to be clear, if you go into a freight cost or website, you'll probably see container costs are about $150, but you've got inland transport and then inland costs, and customs costs, processing costs, et cetera. That adds about another $100, so about $250. So we're about $2,000, so we're close to $2,000 once you've added transport. We're seeing the local market in Europe today are pricing around $2,500. Recent, in fact, recent information we got from the market was Japanese material landing at around $3,000. So that $2,500-$3,000 represents premium above, effectively, a Chinese product landing in Europe, $2,000. So it's a 20%-40%, 25% to... well, 25%-50% premium.
In the lower end of that is what we are also seeing in markets like rare earths, for example, where non-Chinese supplier of rare earths is commanding about a 25% premium. We're also seeing it in steel, interestingly, in Europe, where green steel, low CO2 steel, is commanding about a 20% premium to non-green steel. So there are a number of analogies we can draw parallels to, to confirm that, that premium is a reasonable premium in the, in the market context.
Thanks, Matt. Perhaps maybe staying on pricing, another question here. Can you remind us, offtake pricing is not necessarily fixed. You know, can it be relative to a benchmark? Can you perhaps talk a little bit more about the pricing dynamic within offtakes?
Yeah. So what we announced with our Verkor term sheet is a good example. We have agreed that Western price level, and we will link it to the Chinese index in such a way that as the Chinese index rises and falls, the Western price we have will rise and fall proportionally, subject to a floor price that we have. And that floor price is required again by the project finance banks. So it's not just 80% offtake, but they require a floor price in those offtake contracts, which meets their debt service covenants. And that's an important conversation that we're having with all of our customers. They understand that this is effectively an incentive price for new production outside of China.
Martina, I'll perhaps pass this one your way. You mentioned the potential of Canadian government support for the Bécancour plant. Can you share any kind of more color around those discussions?
So from what we can share, I can say that we are in active discussions with both the provincial and the federal government. There are several sources of funding that can be used for the project, and they come in different ways. It could be loans, partially forgivable, it could be tax rebates, power cost rebates. For us to advance and secure the financing and any support from the Canadian or provincial government, we need to also progress the project. Meaning we need to advance or complete the feasibility study on Bécancour, but as we progress, we'll get more certainty on any funding. So we're actively doing that, and there's a good chance because of what the project is, where it fits in, and it fits into the mandate of both governments.
There's a good chance that we will secure some of that financing.
Thank you, Martina. I'll also perhaps start this one and send this your way, and Matt, you can jump in as required. Martina, might you be able to speak to the percentage of our shares that are owned by the EIB? Is the question. The European-
The EIB, the European Investment Bank doesn't own any of our shares. It might, you might be referring to the European Bank for Reconstruction and Development. They invested last year, about CAD 8.5 million, representing 4.4% of our shares. About 9%-10% of our shares are held by management and the board, and up to another 3%, by our former board members and management members. We do have about 20% held by institutions, so about 40%, and then the rest of it, it's not as transparent, but we believe that some of that is institutional shareholders.
I would say we have a very supportive shareholder group, particularly from the institutionals. They, you know, there are a number which are very supportive, have been visiting site and have been building their positions.
We have a lot of long-term shareholders that are either increasing their shareholding and waiting for the financing to become to increase their shareholding and to be part of the equity financing as well.
Thank you both. I'll perhaps take a step back into a broader question here. Are you aware of producers within the manganese supply chain for steel, particularly in other alloys and that area, moving toward production of battery-ready manganese? Matt, perhaps you might be able to comment on that one.
Yeah. So, the manganese supply for the steel industry is a lower grade product. It's actually 99.7%, which doesn't sound a lot, but again, just coming back to the level of impurities that we are producing are effectively pharmaceutical grade. The difference between our product and the 99.7% product is quite significant. The production of 99.7% product, they add selenium into the electrowinning circuit because it lowers the power consumption. That material cannot be purified down to a sulfate level as far as we are aware, and we've studied that in quite a lot of detail. We actually have some companies which are producing agricultural grade material, for example, sulfate come to us and say they've been trying to produce battery grade for a number of years.
They can't do it, can't get down to the specifications required. Can you help us? And again, it points to, you know, that plant we are building or going to build in the Czech Republic, that's $750 million dollar investment. About 90% of that is in the production plant. Only 10% of it is on the tailings reclamation side. And it just shows you the level of process and cost of that process required to get to these levels of impurities is significant. So we have not seen any producers of manganese for steel go towards production of battery-ready manganese.
There are some high-purity manganese metal producers that have announced they plan to produce sulfate, and we are again monitoring that closely, but the scale of their production will be relatively limited compared to the market demand. And again, we are producing into an extremely strong growing market, so there is plenty of room in the market for these new supplies. In fact, we need it to give the OEMs confidence that they can increase their manganese content in their batteries to lower their battery costs, because that is one of the key ways that EVs are going to become more affordable.
Thank you, Matt. One other question here, and I just remind everybody, if they'd like to ask any further questions, please use the Q&A function at the bottom of your screen. At what point, Matt, in the process, would a strategic partner at the project level be considered?
Yeah. So we didn't put the financing slide in this presentation because we've been over it a couple of times, but in that financing structure, the strategy of the, our financing structure, we are working with the Bank of Montreal and New York already to seek a strategic partner at the project level. Ideally, a OEM associated with offtake or a someone in the industry, although we are also considering critical metals focused funds who would be interested in becoming a project-level partner. So that is ongoing. As part of our discussions, you know, I won't put a timeline on that. Obviously, a strategic partner that's bringing in an investment is gonna take longer than just an offtake contract. So but those, those project, those discussions are ongoing at the moment.
Fantastic. I think that wraps up all of the questions for today. So I really appreciate those of you who have asked some fantastic questions. Matt, I'll pass it over to you for any kind of final comments and wrap up.
Um, one, one-
There's one other question.
Yeah. What-
One more question popped up.
I'll read it out. It says, "What's your read of the LMFP supply chain developments in China as differentiated from NMC? I've heard rumors of using different feed source than sulfate or metal." So our understanding is producers of LMFP may use a different salt as their precursor. We have also seen LMFP producers who do use sulfate. If a market moves to a different salt, like a carbonate, for example, our plant has the flexibility to adapt to that, which I think is important. And one of the key reasons that we have that flexibility is that we go through a metal first as part of our processing. We don't go straight from ore to sulfate. We go from ore to metal.
We have a very good high purity intermediate product, and we would have the flexibility to take that to a carbonate if required. At the moment, all of our offtake discussions for over 200,000 tons of our product are sulfate-based. Okay, I think we'll wrap it up there. I really appreciate your attendance, your insightful questions. Thank you for your support, and we look forward to updating you at our next quarterly call. I'm wishing everyone all the best.